Contract: Parties

Question 1

What is the doctrine of privity of contract?

Answer 1

A contract creates rights and obligations only between its parties; third parties cannot sue or be sued on it

Question 2

Which 1915 case is the leading authority for privity?

Answer 2

Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] AC 847

Question 3

How did Tweddle v Atkinson illustrate the impact of privity?

Answer 3

A groom could not enforce his father-in-law’s promise because he was not a party to the contract

Question 4

Name four common law methods for circumventing privity.

Answer 4

Agency, assignment, collateral contract, and actions in tort

Question 5

How does agency circumvent privity?

Answer 5

An agent contracts on behalf of a principal, making the principal (not the agent) a party who can enforce the contract

Question 6

What must be established to create an agency relationship?

Answer 6

(1) Principal identified; (2) Agent has authority; (3) Consideration moves from principal

Question 7

How does assignment allow a third party to enforce contract rights?

Answer 7

The promisee assigns their rights to a third party; the third party can sue on those rights if no prohibition exists

Question 8

Can a contract prohibit assignment of rights?

Answer 8

Yes; if a contract contains a non-assignment clause, any attempted assignment is ineffective

Question 9

What is a collateral contract and how does it help a third party?

Answer 9

A separate contract between the promisor and third party, so the third party can enforce that collateral obligation

Question 10

Which case exemplifies a collateral contract exception?

Answer 10

Shanklin Pier v Detel Products [1951] 2 KB 854 (collateral warranty on paint durability)

Question 11

How can actions in tort bypass privity?

Answer 11

A third party may sue a contracting party in negligence even if not a party to the contract (e.g., Donoghue v Stevenson [1932] AC 562)

Question 12

What did Donoghue v Stevenson establish that helped third parties?

Answer 12

That a manufacturer owes a duty of care to consumers, allowing third parties to sue in tort despite privity

Question 13

Why did Jackson v Horizon Holidays reflect judicial flexibility on privity?

Answer 13

The court awarded damages for the family’s distress through the father’s contract, treating it as exceptional

Question 14

How did Woodar v Wimpey critique privity?

Answer 14

Lord Scarman criticized that privity prevents parties intended to benefit or be sued from having enforceable rights

Question 15

What statutory intervention created a right for third parties to enforce contract terms?

Answer 15

The Contracts (Rights of Third Parties) Act 1999

Question 16

Under s1(1)(a) of the 1999 Act, when can a third party enforce a contract term?

Answer 16

When the contract expressly states that the third party may enforce the term

Question 17

What are the requirements under s1(1)(b) of the 1999 Act for third-party enforcement?

Answer 17

The contract purports to confer a benefit on the third party and the parties did not intend to exclude enforcement by the third party

Question 18

How must a third party be identified under s1(3) of the 1999 Act?

Answer 18

By name, as a member of a class, or as answering a description in the contract

Question 19

Can a third party not yet in existence at contract formation benefit under the 1999 Act?

Answer 19

Yes, if they are identified as a member of an identified class or by description

Question 20

When does s1(1)(b) not apply, allowing no third-party enforcement?

Answer 20

When on proper construction, it appears the contracting parties did not intend the term to be enforceable by the third party (s1(2))

Question 21

How can parties explicitly prevent third-party rights under the 1999 Act?

Answer 21

By including an exclusion clause stating the agreement does not give rights to any person who is not a party

Question 22

Can a third party enforce limitation or exemption clauses under the 1999 Act?

Answer 22

Yes; s1(6) allows third parties to rely on exemption or limitation clauses as if they were party to the contract

Question 23

What remedies can a third party obtain under s1(5) of the 1999 Act?

Answer 23

Any remedy that would have been available if the third party had been a contracting party, but no more

Question 24

How does s2(1) protect third-party rights from variation or rescission?

Answer 24

Parties cannot rescind or vary the contract in a way that alters or extinguishes the third party’s entitlement without third-party consent if they have communicated assent, relied on the term, or it was foreseeable they would rely

Question 25

When can the court dispense with third-party consent under s2?

Answer 25

If the third party’s whereabouts cannot be reasonably ascertained, they are mentally incapable, or their reliance cannot be reasonably ascertained (s2(4)–(5))

Question 26

What defences can the promisor raise against a third party under s3?

Answer 26

Any defences available against the promisee plus any defences the promisor could assert against the third party directly

Question 27

Under s3(6), when is a third party prevented from enforcing a term?

Answer 27

If they would not have been able to enforce the term had they been a contracting party (e.g., lack of capacity or illegality)

Question 28

How does s4 affect the promisee’s right to enforce the contract?

Answer 28

The promisee may still enforce unless the third party has already enforced and recovered, in which case s5 allows reduction of the third party’s award to prevent double recovery

Question 29

When may the promisee’s enforcement right be reduced under s5?

Answer 29

If the promisee has already recovered compensation for the third party’s loss or made good the third party’s loss to avoid double recovery

Question 30

Which contracts are excluded from the 1999 Act by s6?

Answer 30

Contracts for carriage of goods by sea, contracts on bills of exchange/negotiable instruments, employment contracts, and contracts between a company and its members

Question 31

What does s7(1) state about existing common law and statutory exceptions?

Answer 31

They remain in force and are not affected by the 1999 Act